Reference no: EM132536520

The following information was made available concerning the four departments of the Snake-Bite Company.

                                                  A                  B                C                 D

Sales (in $)                              100,000         25,000        50,000    75,000

Variable cost of gods sold             70,000         15,000       30,000    50,000

Variable selling expenses              10,000           2,000        6,000    12,000

Contribution margin                     20,000           8,000      14,000    13,000

Fixed costs                                 20,000           5,000   10,000        15,000

Profit                                             0            3,000        4,000         (2,000)

Problem 1: The president of the company has decided that one department must be dropped. Fixed costs have been assigned according to the sales of each department. Regardless of your decision, fixed costs will be reduced by 25%. Which department should be dropped so as to give the greatest benefit to the company?

Select one:

a. C

b. B

c. D

d. A

Problem 2: A business plans to make 15,000 coats per annum, each taking the 1.5 direct labour hours. If the direct labour rate is $8 per hour and a pay rise of 15% is awarded halfway through the year, what is the total annual direct labour budget?

Select one:

a. $ 120,000

b. $ 207,000

c. $ 180,000

d. $ 193,500